Double-exponential jump-diffusion processes: a structural model of an endogenous default barrier with a rollover debt structure

Binh Dao and Monique Jeanblanc

Journal of Credit Risk

Abstract: ABSTRACT We extend the framework of Leland, who proposed a structural model of rollover debt structure in a Black-Scholes framework.We apply this to the case of a doubleexponential jump-diffusion process, considering a trade-off model with firm risk, risk-free interest rate and payoff rate parameters as well as tax benefits for coupon payments, default costs, violation of the absolute priority rule and tax rebates. We obtain the equity, the debt, the firm and the credit-spread values in closed form. We analyze these values as functions of coupon, leverage and maturity. The yield spreads in our model are significantly different from zero when the maturity tends to zero, correcting the weakness of Leland's model through the use of jump modeling.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/journal-of-credit-risk/218649 ... lover-debt-structure (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ1:2186499

Access Statistics for this article

More articles in Journal of Credit Risk from Journal of Credit Risk
Bibliographic data for series maintained by Thomas Paine ().